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Financial Solutions
06 Mar 2018

Trends in the digital age: Subscriptions are dead. Long live subscription commerce!

Why memberships are attractive to customers again – and even more attractive to retailers

Recently I had dinner at my neighbour’s house, which gave me an opportunity to admire my host’s bulging bookshelf once again. He still belonged to the generation that loved and lived for the book club, a statement my neighbour had proudly declared a few months ago. He celebrated every new tome, reading it first and then adding it to his collection on the shelves. My neighbour was not alone in this: holding a book with a special binding or cover on a regular basis and paying 10 to 20 percent less than for the original edition was attractive for the six million other Germans in the early 90s who loved their subscriptions.

Although the traditional business continued to evolve over time, expanding its product line-up to include music, video and hardware products, or collaborative enterprises like travel, book club membership declined even before the millennium. Customers had not only lost interest in newspaper subscriptions: they also lost interest in such popular book clubs as the “Bertelsmann Reading Ring,” introduced in 1950. Two years ago, the leaders of this famous club decided to dissolve it.

The main reason for this seems obvious: memberships and subscriptions have had their day. Apart from loyal customers like my neighbour, for whom a small world seems to have collapsed once the book club ended, consumers today no longer want to commit themselves long term to a product.

While the print industry bid farewell to the classic subscription model, the business concept of memberships in other e-commerce product areas in recent years, however, has experienced a veritable boom. From streaming services like Spotify and Netflix to ordering food, beauty products, and even SaaS solutions (Software as a service) – there is hardly a product segment that does not rely on subscriptions. The US company United Airline offers frequent flyers a subscription service which guarantees them easier baggage handling and more legroom; the package enhances passenger comfort even before lift-off.

What sets these models apart from the book club is their flexibility. Customers are not tied to terms but can decide for themselves how long they pay for the product or service. The complexity of everyday life is reduced, and the luckiest customers even get a discount. Saving time also plays a key role in the demand level of customers who want to order, receive, and pay for products as conveniently as possible.

For retailers, flexible subscription models are no less attractive. The increased customer satisfaction achieved through flexibility and convenience leads to a stronger bond with the consumer. An advantage of these long-term customer relationships is secure revenue that ensures long-term economic planning.

Incidentally, since the book club ended, my neighbour has been reading less, but continues to use subscription models. He acquired a subscription for audiobooks some time ago. He gained access to current audiobook titles for a monthly price of 10 euros. The big advantage of these subscriptions is that bestsellers and new releases are significantly cheaper compared to single purchases. “Convenient and inexpensive – what more could you ask for?” My neighbour said. And if the prices go up, that’s no problem, since nowadays flexible subscriptions can be terminated at any time.

Check back on our blog next week to see what hurdles you need to overcome as an online retailer to get started with a subscription model. Or download our new ebook to learn more about the challenges and benefits of subscription commerce.

Sebastian Kespohl

Managing Director | AfterPay Germany

 

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